IR Weekly – Monday 24th August
Welcome to FTI Consulting’s IR Weekly newsletter.
In this week’s edition, we review a fund manager’s critique of the government response to coronavirus, before exploring why London listings have reached an eleven-year low. Next, we look at the suggestion that prices across asset classes have been left “overvalued” following the recent rally, in addition to the prospect of the Dutch government levying an “exit tax” on Unilever. We continue by noting Third Point’s retreat from its campaign against Sony, following the hedge fund’s targeting of the conglomerate last year. Finally, we discuss the prospect of investors working from home in perpetuity.
This week’s news
Lockdown: the biggest policy failure since WWI
The UK government’s decision to implement a nationwide lockdown was among the “biggest policy errors since 1914”, according to Barry Norris, a fund manager at Argonaut Capital Partners. During an interview with Investment Week, Norris, who is responsible for the FP Argonaut Absolute Return, European Alpha and European Income Opportunities funds, added that “following expert opinion blindly is normally the road to ruin”, as he praised the approach adopted by Sweden. The manager acknowledged that “there is a trade-off between the economic devastation and the public health benefit” but at the same time argued that no such benefit had been derived in the UK. Some of his fund positions will come as a surprise: Norris is short “essentially all vaccine developers” (on the basis that the solutions for Covid-19 will lie with cheap, generic drugs rather than new, wonder drugs) and he is even contemplating buying airlines and cruise ship operators (on the basis that lockdown has happened once and it won’t ever happen again).
London listings reach eleven-year low
The Telegraph reported that the number of firms listing on the London stock exchanges had reached an eleven-year low, with just six initial public offerings recorded in the year to date. The offerings, which raised £647m, represent both the lowest volume and the lowest value raised since the financial crisis in 2009. Commenting on the figures, Alex Ham, co-head of Numis, suggested that while the slowdown had been driven by the outbreak of COVID-19, it also reflected “a structural trend for companies staying private for longer and in some cases forever”. As a result, private equity houses appear poised to invest in a range of companies that would have traditionally been on course for a public listing, utilising the record $2.5trn of “dry powder” at their disposal worldwide.
‘Overvalued’ markets unsettle investors
In a week when Wall Street hit a new all-time high, many IROs will be scratching their heads. Financial Times reported that the recent rally across asset classes had triggered concerns among investors that they had been left “overvalued”, with the sharp increase in prices coming as the global economy entered recession. According to a Bank of America survey of investors, a portfolio with equal holdings of stocks, bonds and gold is at its highest price point since 2008, despite the ongoing impacts of the coronavirus pandemic. Regardless, the investors polled remained optimistic on economic outlook, with 80% expecting stronger economic growth ahead, and 57% predicting higher profits. Meanwhile, the survey also found that the cash balances of funds had decreased, suggesting that more money had been deployed in riskier markets.
Exit tax: Dutch tell Unilever not to leave
The Telegraph reported that the Dutch government is proposing an exit tax of up to €11 bn (£9.9 bn) should Unilever decide to leave the Netherlands and base itself in the UK. The company this year decided to base itself solely in the UK, in order to simplify its otherwise cumbersome business structure. The mobility of capital, differences in tax rates across borders, and the ease with which businesses can leave a country and set up elsewhere, have made it hard to tax corporations. For this reason, exit taxes have become more commonplace. And their popularity looks set to increase, with governments searching for ways to repair the damage which the Covid-19 pandemic has caused their economies. The article goes on to suggest however that exit taxes are almost certainly illegal under European law and also should be forbidden for being retrospective (and thus not known to individuals or companies when arranging their affairs, only afterwards).
A victory for corporate Japan versus the activist investor
Reuters reported that US Hedge Fund Third Point LLC has sold all of its American Depositary Receipts (ADRs) in Sony Corporation. The fund, led by activist investor Daniel Loeb, had called for Sony to sell off its chip business and some of its non-core assets. However, following Sony’s refusal to do so, Third Point reduced its Sony ADR ownership from 1.5 million shares in December to 675,000 at the end of March – before selling off the rest of the ADRs in this latest development. Fortunately for the fund, however, it has nonetheless benefitted from its engagement with Sony, with its share price surging around 80% since it was first reported to be building a stake in Sony last year.
And Finally … permission to continue working from home forever
It’s a move which (if followed by other institutional investors) might well change how IR is conducted. The Guardian reported that asset management company Schroders will permit staff to permanently maintain a split of home and office working after the Covid-19 pandemic. Prior to the pandemic, Schroders staff had to be in the office for at least four days per week. But now their employees will be at liberty to work wherever they like, provided – as reported by The Times – they honour the days and hours outlined in their contracts. Shifts to more flexible working patterns such as these have been praised by trade unions, but City A.M. provided a reminder of the negative impacts that the change could have for the City, with many small businesses relying on footfall from City workers.
Berenberg Top Picks Seminar 2020 (virtual) (26-27 August)
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